Ethereum miners may not be having a good time. Though the price of the Ether coin has stabilized at around $200 and it continues to be the second largest cryptocurrency in the world by market cap, miners may not be winners in this case. In 2017, Ethereum was one of the top 5 cryptocurrencies to invest in. 2018, however, has not been a good year for ETH so far.

A new analysis by LongHash suggests that Ethereum’s hash rate has fallen by as much as 12 percent since August, which means that miners could be losing money instead of gaining rewards for all their efforts in mining the digital currency.

The Upward or Downward Trend?

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LongHash suggests that the right question for the moment is not how much the coin will fall but when will the price rebound to $300. Following the basic rules of economics, lower supply should lead to higher prices.

As the amount of ETH available in the market decreases, the currency will finally experience some price rebound. However, recent activity in Ethereum suggests that the crypto is going the opposite way. ETH is experiencing mass sell-offs, especially with ICOs which has led to an increased supply of the coin.

A Bitmex report published at the beginning of the month suggests similar trends. A majority of the 220 ICO projects they surveyed for their report had sold Ether in August and September. In fact, ICO projects hold only 4 percent of the total ETH supply.

The Mining Problem in Ethereum

A large portion of the current ETH supply comes from miners, whose only incentive to continue their activity is profit. If the cost of mining coins exceeds revenues, many miners will stop. This will lead to less ETH in the market and hence, higher prices. LongHash asks, when will miners consider that ETH is no longer profitable?

Mining costs depend on four factors – power and price of mining machines, depreciation costs on mining machines and hashing difficulty, mining policy, and most importantly the cost of electricity. Ethereum relies on GPU mining, depending extensively on RAM bandwidth which fails to improve performance in relation to cost. Buying ASIC machines could also be problematic as they may not fetch a value after nine months of use.

The rise in mining difficulty ensures that a mining machine’s income doesn’t cover its electricity costs any longer. Low-price power is, therefore, critical for the miners. A significant number of miners are based in China, in a crypto-unfriendly territory. In the Sichuan region, which houses several mining pools, the cost of electricity will rise and fall with the changing seasons.

The Ethereum mining policy will further hurt miners as the block rewards will be reduced with the EIP 1011 Hybrid Casper FFG draft. Miners getting 3 ETH now will get only 2 ETH post-upgrade. As all these factors make mining difficult and more likely a loss-making business for miners, many will abandon the activity, leading to lower supply and potentially a higher price.

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